Public deposits are raised by business organisations directly from the public. These deposits usually offer a high rate of interest. This source fulfils the medium as well as short-term finance requirements of the business.Merits:
- The procedure of obtaining deposits is simple and does not contain restrictive conditions as in case of a loan agreement.
- Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions.
- Public deposits do not usually create any charge on the assets of the company. The asset can be used as security for raising loans from other sources.
- New companies generally find it difficult to raise funds through public deposits.
- It is an unreliable source of finance as the public may not respond when the company needs funds.
- Collection of public deposits may prove difficult, particularly when the size of deposits required is large.